Pimco, a leading global investment management firm, and Source, a specialist provider of exchange-traded products, have announced the launch of the Pimco Short-Term High Yield Corporate Bond Index Source ETF (STHY). The ETF has been listed on the London Stock Exchange and aims to track the BofA Merrill Lynch 0-5 Year US High Yield Constrained Index.
The fund's second-largest holding is an 8%-coupon bond issued by Ford, currently yielding over 7%. Other top-ten holdings include credits issued by Sprint Nextel, Qwest Communications and MGM Mirage.
STHY is the first ETF available in Europe to provide investors with physical access to the short-maturity sector of the high-yield universe. High-yield exposure has been used by many as an alternative to equities. Historically, returns of the short-term segment of the high-yield market have been in line with equities, but with approximately half the volatility.
The fund’s index contains a wide range of issuers and securities (821 securities as of 29/02/2012) enabling Pimco to use its experience and expertise in both portfolio optimisation and global high-yield investing.
Pimco’s optimisation process seeks to maintain the fund’s objective of closely tracking the index, while reducing transaction costs, and avoiding exposure to the relatively small universe of bonds deemed illiquid or issuers whose viability as a going concern is in doubt.
Commenting on the launch, Ted Hood, CEO of Source, said: “Investors told us they were looking for opportunities to invest in High Yield but wanted a ‘smarter’ ETF to deliver access to the short maturity sector whilst at the same time aiming to deliver efficient tracking and improved portfolio management. STHY, the first ETF in Europe developed to deliver physical exposure to the short end (0-5yr) of the high-yield corporate bond sector, is designed to do just this”.
Vineer Bhansali, Managing Director at Pimco and Portfolio Manager of STHY, added: “For investors looking to allocate to the corporate and high-yield bond sector, it is worth noting that over the last fifteen or so years the shorter-dated high-yield corporate bond sector has delivered similar yields, lower volatility and a lower correlation to equities than longer-dated high-yield corporate bonds. Returns on a diversified basket of high-yield bonds tend to be less volatile than equities over a long holding horizon because the income component of the return is typically larger than that of equities, providing an added measure of stability.”
The Pimco Short-term High Yield Corporate Bond index Source ETF marks the sixth addition to the physically invested Pimco Source range of ETFs launched last year comprising the MINT strategies – Europe’s first actively managed ETFs – and the forward-looking GDP-weighted fixed income ETF strategies designed to deliver better optimised replication of emerging market local government bond and European government bond benchmarks.
STHY is registered for sale in the UK, Ireland, Austria, France, Finland, Germany, Italy (for institutional investors only), Netherlands, Norway and Sweden, and has a Total Expense Ratio (TER) of 0.55%.